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Back to school: Top 5 ways to avoid going broke in college

By Elana Ashanti Jefferson, special to The Washington Post

Updated:
07/29/2013 05:54:46 PM EDT

Trevor Hall, 19, a recent Montbello High School graduate, works at Denver International Airport where he provides travelers with wheelchair assistance. Hall says he saves most of his earnings. (Photos by Erin Hull, The Denver Post) (Erin Hull)

Because traditional college kids (hypothetically) study more than they work — if they work at all — they are notoriously poor.

But the college years need not be lean years, according to financial experts.

In addition to capitalizing on college as a time when young people learn their party limits and figure out how to navigate the dating pool, being an undergraduate essentially means living on a fixed income, making it an ideal time to develop lifelong money smarts.

But roughly 20 percent of teens report feeling "clueless" about how to save, spend and budget money, according to Danielle Denega, author of the teen finance book "Smart Money" (Scholastic, 2008). Believing they are too young to need to save money, most American teens tend to blow their cash without giving much thought to future expenses.

"Young people spend their money on junk food or clothes," says Trevor Hall, 19. He learned about money through Operation Hope's Business in a Box program, a series for high school students that launched at Montbello High School but will soon be available to teens through Denver Public Schools.

"If you keep going that way," Hall says of the spending habits exhibited by many of his peers, "you're definitely going to end up broke."

Hall is a recent Montbello graduate who decided to attend community college for two years and then transfer into a four-year program.

"I know if I went to a four-year institution right away, (getting acollege degree) would cost me a heck of a lot more money," says Hall, who socks away most of the earnings from his job as a wheelchair attendant at Denver International Airport.

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Mary Hagerty Ehrsam, president of Operation Hope's Global Youth Empowerment Group, says Hall's training has provided the teen with "financial dignity" as opposed to financial literacy — providing not just know-how, but also a sense of empowerment and pride.

Her message to other young people headed off to college this fall: "You absolutely have the ability and the power to take control of your financial future. You do that by being smart and making the wisest decisions you can with your money."

It's not about whether or not a student is flush with cash. It's about how college students use the money they have, no matter how much or how little.

At its core, Operation Hope aims to alleviate poverty. Business in a Box is among several programs that target low-income and at-risk communities with "financial dignity" training.

Here are five more money-smart tips for young people headed to college this fall, compiled by Operation Hope and other youth finance experts.

1. Think first, spend later.

The world is flush with advertising targeted at awakening consumer impulses. Look no further than Disney- and Nick Jr.-loving tots who sing toy-commercial jingles alongside their favorite nursery rhymes. Similarly, before each purchase, a college student should question: Do I really need this? Why do I want this? Will it go on sale soon? Could I find this cheaper elsewhere?

"Answering these questions for yourself can make the difference between wise spending and impulse buying — often the fastest way to burn through the money you make," Rae Simons writes in "Spending Money" (Mason Crest, 2011), which is part of the young people's financial-reference series "Junior Library of Money."

2. Monitor emotional spending.

Learn to avoid impulse purchases, shopping for entertainment, shopping at the last minute, and paying full retail price for something (at the mall, for example).

"It's important to realize that buying things can make you feel good temporarily," Simons writes, "but spending money shouldn't be viewed as something to do when you're feeling down."

3. Establish a budget.

The starting point for mastering money is earning or saving more than you spend. "It doesn't matter if you are living on campus, living at home with your parents, or living in an apartment," says Operation Hope's Mary Hagerty Ehrsam. "A budget is a simplistic way of tracking what expenses you have, or money that goes out, versus financial resources (such as) allowance, employment, grants and scholarships. Get into the habit of writing down all of your expenses, no matter how small they are."

4. Reject peer spending pressure.

It's never too early to learn that there will always be someone richer, smarter, better-looking and more popular. Money-smart college students avoid trying to keep up with friends who take fanciful midyear vacations, wear the hottest styles or buy the latest electronics. "Knowing your spending limits while in college is a gateway to becoming a responsible young adult," Ehrsam says.

5. Plan now for later.

That youthful feeling of being invincible absolutely translates to financial affairs. Consider that federal student loan debt recently has topped $1 trillion, according to the Consumer Financial Protection Bureau. All that debt is likely to affect the broader economy by limiting borrowers' ability to take on new financial obligations such as buying a car or a house.

Too frequently, college students fail to really think about post-graduation debt and how it will affect their future financial security. "If you do not have to take out student loans, consider yourself fortunate," Ehrsam says. If you do have to take out loans, borrow only what you need for basic expenses, and start paying the interest immediately.

"Although your loans are in deferment while you are enrolled in school," she says, "interest is still accruing.... One way to combat the interest is to pay it while you are still in school."

Student-loan management tips for recent college grads

To avoid stress and regret over borrowing money for college, heed this advice from The Project on Student Loan Debt sponsored by the Institute for College Access & Success.

Know your loans. It's important to keep track of the lender, balance and repayment status for each of your student loans. These details determine your options for loan repayment and forgiveness.

Know your grace period. A grace period is how long you can wait after leaving school before you have to make your first payment.

Stay in touch with your lender. Whenever you move or change your phone number or e-mail address, tell your lender right away.

Pick the right repayment option. When your federal loans come due, your loan payments will automatically be based on a standard 10-year repayment plan. If the standard payment is going to be hard for you to cover, there are other options, such as income-based repayment, and you can change plans down the line if you want or need to.

Reduce your principal if you can. When you make a federal student- loan payment, it covers any late fees first, then interest and, finally, the principal. If you can afford to pay more than your required monthly payment — every time or now and then — you can reduce your principal, which reduces the amount of interest you have to pay over the life of the loan.

Stay out of trouble. Ignoring your student loans has serious consequences that can last a lifetime.

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